Important New Iowa Tax Sale Law

On April 8, 2008, House File 2642 was enacted by the Iowa Legislature to amend the Iowa Code to significantly enhance the marketability of tax sale deeds in Iowa. This amendment is intended to substantially eliminate the adverse impact on tax titles that resulted from the recent decision by the Iowa Supreme Court in Dohrn v. Mooring Tax Asset Group, 743 N.W.2d 857 (filed January 25, 2008). In Dohrn, the Court determined that a tax deed is subject to invalidation, even years after it was recorded, if it is challenged by a person who shows that notices were not served on persons with unrecorded possessory rights, such as (a) a tenant under an unrecorded lease, (b) a person who had parked a truck on the premises, and (c) a person who stored personal items in a building on the premises, (d) a person who maintained a pile of lumber behind an uninhabited home, (e) a neighbor who went every other day to the house in an attempt to exterminate vermin, (f) a person who periodically cut weeds and hauled dirt from the premises, or (g) a person who removed timber from an uncultivated wood lot. Under their title standards, Iowa attorneys examining abstracts of title for a potential buyer or lender rely on matters of record in rendering opinions as to the marketability of title. Under the Dohrn decision, a tax deed is subject to invalidation for reasons that are not disclosed by an abstract. The abstract can furnish no notice to the examiner of the existence of persons with insignificant, unrecorded possessory interests of the types discussed in Dohrn.

The HF2642 amendment addresses the problem of tax deed marketability by adding a new unnumbered paragraph to Iowa Code Section 448.3, which provides that a tax deed is not subject to invalidation if notice was not served on a person entitled to service. Instead, the interest of the person not served with notice simply survives the issuance of the tax deed. The only exception is that a tax deed remains subject to invalidation in the case of failure to serve the owner of record or the person in whose name the parcel is taxed. By protecting the interest of any person not served with notice by allowing his or her interest to survive the issuance of the tax deed, while at the same time upholding the validity of the deed, HF2642 effectively reduces the problem of marketability of tax titles that exists under the prior law. The amendment takes effect immediately upon its enactment on April 8, 2008, and applies to all tax sale deeds issued on or after that date.

Iowa Real Estate and Tax Sale Lawyer Blog

Iowa Real Estate and Tax Sale Blog is maintained by Jim Nervig, an attorney and shareholder in the law firm of Brick Gentry P.C. in West Des Moines, Iowa. Jim practices law primarily in the areas of real estate and commercial transactions, tax sale law, tax assessment appeals, zoning and municipal law, corporation and business law and wills. He frequently speaks at seminars on real estate, tax sale and zoning topics. Jim previously served as City Solicitor for the City of Des Moines, Iowa, and Iowa counsel for the U.S. Resolution Trust Corporation. He is serving presently as Foreclosure Commissioner for the U.S. Department of Housing and Urban Development and as a member of the real property and legal forms committees of the Iowa State Bar Association. Jim's blog is intended to help readers stay current on issues relating primarily to real estate, commercial transactions, business planning and tax sale law and procedures in Iowa.

Iowa Tax Sale Certificates Yield 24 Percent

In Iowa, tax sale certificates to parcels of real estate with delinquent taxes will be sold by each county treasurer at annual tax sales to be held in each county on June 16, 2008. At the sale, the successful purchaser pays the treasurer the amount of delinquent taxes and receives a certificate that entitles the holder to receive reimbursement of the taxes paid plus interest when the parcel owner redeems the parcel in the future.

Iowa tax sale certificate holders receive interest upon redemption at an annual rate of 24 percent, the highest rate of any state in the country. ( See Iowa Code Section 447.1 whereby the redemption interest is computed at the rate of two percent per month.) If the parcel owner fails to redeem, the certificate holder may initiate procedures to foreclose on the certificate and obtain a tax sale deed to the parcel after two years from the date of the tax sale.